The adventurous spirit of Canadian miners has created a new risk for the industry abroad – fraud and corruption.
In a report released Tuesday, financial services firm Ernst & Young (E&Y) said as mining companies expand into new territories around the world in search of high-value commodities their exposure to fraud and corruption increases.
“In the quest for expanded production and higher returns, Canadian companies are re-activating capital projects and exploration activities across the globe,” explained Mike Savage, leader of E&Y’s national fraud investigation and dispute services practice. “The fact that these projects are often undertaken in remote locations – along with the large amounts of money being spent and the reduced controls from cutbacks during the financial crisis – means that the risk of fraud and corruption is much higher.”
The news has special significance for Vancouver’s business community, which is considered a global mining hub and home to many of the junior mining companies that are usually the first ones on the ground in new territories (See “Danger pay: Vancouver miners increasingly venturing into remote and unpredictable regions in the hunt for resource riches” – issue 1079; June 29 to July 5).
The report also said labour-intensive operations and high-value commodities such as precious metals and coal predisposes certain mines to fraud.
The risk in the industry has also become higher recently because the recovery in mining and metals has outpaced other industries following the recession.
Over the last several months, analysts and mining executives have told Business in Vancouver that corruption and bribery are common in developing nations (See “Bribery a part of life for many overseas miners: analyst” – BIV Business Today, June 25).
Those same executives warn junior companies that it is better to avoid these practices altogether because once they start they rarely stop.
E&Y said in its report that greater risk exposure to fraud and corruption needs to be “top of mind” with corporate boards, and can fundamentally impact a company’s ability to operate, access new projects and create a return for shareholders.
“The time to develop plans and procedures that protect against fraud is not when the world is knocking at your door looking for answers,” Savage said. “Fraud and corruption are key risks that organizations should be prepared for.”